Aug. 12 (Bloomberg) -- Canada's dollar snapped its longest losing streak in three years after a government report showed the nation's trade surplus increased during June.

The Canadian dollar strengthened versus the 16 most- actively traded currencies and gained for the first time in nine days against its U.S. counterpart.

``We've had a string of disappointing reports, so markets may be taking some hope from the improvement in the trade balance,'' said Paul Ferley, assistant chief economist at Royal Bank of Canada in Toronto. ``There has been a modest weakening of the U.S. dollar, and that is providing some support for the Canadian dollar as well.''

The currency increased 0.6 percent to C$1.0633 per U.S. dollar at 12:19 p.m. in Toronto, from C$1.0692 yesterday. It was the biggest one-day gain since July 21. Earlier it touched C$1.0728, the weakest since Aug. 17, 2007. One Canadian dollar buys 94.06 U.S. cents.

``There is a sense the U.S. dollar may have gotten ahead of itself, given its violent rally over the last couple of weeks,'' said Sal Guatieri, a senior economist at the Bank of Montreal in Toronto.

The Canadian dollar depreciated for nine days during the period ended April 18, 2005, on concern opposition parties would call for a no-confidence vote to oust the governing Liberal Party over a kickback scandal.

The surplus widened to C$5.76 billion ($5.41 billion) from a revised C$5.22 billion during May, Statistics Canada said in Ottawa.

`Greater Foreign Demand'

``The trade numbers showed that there is greater foreign demand for the currency in overseas markets,'' said Craig Alexander, deputy chief economist at TD Bank Financial Group in Toronto. ``The Canadian dollar's gain is more of a short-term break in the trend for the currency. Commodity prices will be the dominant factor in the short term.''

The currency has decreased 5.1 percent since July 11, when oil reached a record $147.27 a barrel. Crude weakened 0.9 percent today to $113.47. Commodities account for about half of Canada's exports. The U.S. is Canada's biggest trading partner.

The Canadian dollar will weaken to C$1.09 by the end of 2009, according to the median estimate of 31 economists surveyed by Bloomberg News.

Two-Year Yield

The yield on the two-year government bond rose 1 basis point, or 0.01 percentage point, to 2.76 percent. The price of the 3.75 percent security due in June 2010 fell 2 cents to C$101.73. The 10-year bond's yield fell 3 basis points to 3.61 percent.

The 10-year bond yielded 85 basis points more than the two- year security, down from 90 basis points on Aug. 8.

Canada's two-year bond yield will rise to 3.10 percent by the end of this year, with the 10-year yield increasing to 3.81 percent, according to the median forecast in a Bloomberg survey.

The yield advantage of the 10-year U.S. Treasury note compared with similar-maturity Canadian government bonds was 31 basis points, down from 36 basis points yesterday. The Canadian 10-year bond yielded 36 basis points more than its U.S. counterpart on Jan. 22.

Canadian government bonds have returned 4.3 percent in 2008, according to Merrill Lynch & Co. index statistics. U.S. Treasuries returned 2.7 percent so far this year.

To contact the reporter on this story: Cordell Eddings in New York at ceddings@bloomberg.net

Last Updated: August 12, 2008 12:20 EDT